Demand For Higher Density Development Slowing Down

February 8, 2018

Will 2018 signal the end of the latest real estate cycle?

Recent gains in demand for infill development and other factors associated with community accessibility appear to be moderating. Showing signs of market saturation, demand for walkable neighborhoods, multi-generational housing and access to public transportation remain very strong, but growth has leveled off, according to the findings from the American Institute of Architects (AIA) Home Design Trends Survey for the third quarter of 2017, which focuses on community and neighborhood design.

“Intense development pressure on urban neighborhoods seems to be tapering as more development swings back to suburban and exurban locations,” said AIA Chief Economist, Kermit Baker, PhD, Hon. AIA. “Though homeowners still desire access to community amenities, these results reflect a slowing of migration toward more dense neighborhoods.”

The AIA Home Design Trend Survey is conducted quarterly with a panel of over 500 architecture firms that concentrate their practice in the residential sector. Residential architects are design leaders in shaping how homes function, look, and integrate into communities and this survey helps to identify emerging trends in the housing marketplace. Business conditions are also monitored on a quarterly basis.

Have Cities Reached Peak Millenial?

The argument that millennials are permanently tied to cities ignores large swathes of the millennial cohort, focusing instead on the affluent portion of the demographic based in coastal cities with sky-high real estate prices. According to M. Leanne Lachman, a president of Lachman Associates, a real estate consulting firm, only about one-third of this age group live downtown, mostly clustered in 11 magnet downtowns. Two-thirds of millenials live in suburbs and rural areas, and do not even identify themselves as "urban".

Whether being pushed out by lack of affordable housing options, or by NIMBY rabble rousers fighting new development in close-in urban neighborhoods, the trends show a future where millennials are moving to the suburbs. "It may be overhyped," says Adam Ducker, managing director at RCLCO, a real estate consultancy, of the potential wave of millennials moving to the suburbs. "But it’s still important. In a country of 350 million people, if 3 or 4 percent do something different, that’s vitally important. It’s important to not overstate the difference between generations. The real problem here is that nobody in the homebuilding industry is giving them a product they want."